1. 1 CONSOLIDATION: THE SPEED MATTERS

2. 2 The trends – consolidation has been approaching  Local funds were not enough for supporting economic growth  External borrowing was not available to many local banks  Expansion in the retail segment required significant investment  Mortgages demanded cheap long-term funding  Competition with foreign banks increased rapidly

3. 3 Concentration of assets With the exclusion of several success stories, the Russian TOP50 used to improve their positions slowly but steadily During the same period state-owned banks increased their share from 46.6% to 49.6%

4. 4 Autumn: painful reaction  Confidence crisis in the banking sector in September  Bank runs in October  Increased losses due to bad public market performance  Increasing share of NPLs due to corporate defaults  Depreciation of rouble  Non-payment crisis in non-financial corporate sector  Worsening of labor market conditions

5. 5 Funds: aggregates dynamics The personal deposit growth rate is declining rapidly. From 1 January 2008 they have increased by only RUR390 bln. Even the acceleration in the growth rate of corporate funds in 2H 2008 is mostly explained by state activity.

6. 6 Funds: a closer look at corporate sector deposits Decomposition of deposit growth in October: Minfin + RUR217 bln; State-owned entities + RUR4 bln; Private sector – RUR15 bln Since 01.01.2008 private corporate deposits have increased by only RUR524 bln

7. 7 Banking sector – October’s figures  Personal deposits decreased by 5.9% MoM (less than 20% YoY)  Corporate funds decreased by approx 1% only, but mostly due to state activity  10-month accumulated profit of the banking sector decreased by 3.3%  Corporate NPLs increased by 31% and reached 1.5% of loans issued  Personal NPLs increased by 2.1% and reached 3.2% of loans issued  Cash funds increased by 31%, which used to happen in December only  Correspondent accounts with non-resident banks increased by 41% and approached US$20 bln (RUR532 bln)  Asset growth of 3.5% was mostly assured by Minfin and CBR funds placed during the month: banks got RUR1075 (4.3% of assets) from these sources CONDITIONS IN THE BANKING SECTOR ARE BECOMING VERY UNFAVORABLE

8. 8 LIABILITIES: TOP5 and the others Although even in the TOP5 the total amount of individual deposits decreased by 3% MoM, they managed to achieve asset growth by 4.8% MoM and improve their positions. % October 2008September 2008 Refinance with the CBR 28.945.6 Non-financial sector current accounts 41.436.5 Deposits of legal entities 50.148.0 Personal deposits57.555.7 Total liabilities45.144.5

9. 9 Loans – deceleration is already here We expect the currently slowly declining growth rate of corporate and personal loans to decrease substantially over coming months; with the lack of local and foreign funds the pace of growth will fall to 20-30% in nominal terms at best

10. 10 Banking sector is ready  The group of 50-100 biggest banks has been improving their positions since 2H 2007 and in the new conditions they are better positioned than the others  Assets growth is decelerating as resource base is diminishing  Government support is increasing – most of the banks now can’t live without CBR refinancing  Non-performing loans are increasing and the situation will be worsening as the number of corporate defaults tends to increase  Profits are decreasing and many constant loss-makers may appear among banks THE TOUGHT TIMES ARE HERE ALREADY – AWAITING CONSOLIDATION ALL IS IN THE HANDS OF MONETARY AUTHORITIES THE ONLY QUESTION LEFT: WHAT SPEED WILL BE PROPOSED?

11. 11 Speed Enforcement: The Bank of Russia now may affect the speed on the consolidation process substantially  More than 350 small banks may be eliminated by simply increasing capital requirement to EUR5 mln  Tenths of the bigger ones may be forced to merger by tougher refinancing conditions  Lack of funding and thus future prospects will leave owners of the most of the others no choice but to sell their business Parachute:  Refinance conditions acceptable for TOP100-200 banks, but CBR mostly provides short-term liquidity  Licenses are being revoked only from banks with serious breaches  Facilitation of mergers in the banking sector through legislation and CBR financing

12. 12 30-50 WE GET SEVERAL MORE NATIONAL CHAMPIONS BUT LOSE EFFICIENCY AND COMPETION  There are 5-10 banks constituting most of the assets in the system  The other 20-40 play a supportive role, trying to concentrate in the niches, but being “universal” in their nature  Every bank is very important – no bankruptcies to prevent the failure of the system  Banks have a lot of “bad” assets on their books  The government supports the banking sector constantly through funds placement  The sector in not quick to react and the pace of development is slow, although there is no significant decrease in growth rates during the process of consolidation  Sector capacity to adapt to the external shocks is low

13. 13 300-400  300-400 banks may survive  The TOP100-200 are mostly universal commercial banks, with TOP30-50 with 50% of all the assets  Most of the others are concentrated in the niches – private banking, investment banking (depends on the regulations), different kind of corporate services  After a period of adaptation which will be reflected in slow growth rates, high NPLs and big losses the system will begin developing very quickly  The speed of adaptation to the external shocks and the efficiency of operation are very high  Bankruptcies (especially beyond TOP200) may take place, but do not result in the failure of the system THE TOUGHT TIMES ARE HERE ALREADY – AWAITING CONSOLIDATION

14. 14 THANK YOU! Most of the estimates are done basing on the TRUST Banking Sector Navigator, which is available at www.trust.ru